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Weekly Global Update for December 4, 2013

October Semiconductor Shipments Remain Strong

SIA just released the October global and regional semiconductor shipments.

World shipments in US$ were up 7.2% comparing August-October 2013 to August-October 2012 (Chart 1). Only Japan was below last year – and it is improving!

Global shipments were at an all-time high on a 3-month average basis (Chart 2).

Despite record high shipments in October growth rates both globally (Chart 3) and regionally (Chart 4) now appear to be slowing.

All regions saw increased shipments on a 3-month average basis in October (Chart 5) but due to normal seasonality they declined for month of October alone (Chart 6). We are also moving to the end of the autumn "busy season" so expect further monthly weakness ahead.

Globally SE Asia consumed 54.9% of the semiconductors in October with North America second at 22.3% (Chart 7).

Semiconductor shipments to North America have been very strong (Chart 8) with growth far in excess of electronic equipment shipments however North America’s semiconductor growth appears to be headed for a downward correction (Chart 9).

Taiwan/China (Chart 10) and Europe (Chart 11) are in a more controlled position regarding semiconductor versus electronic equipment growth.

Japan is finally showing signs of recovery based on end market and semiconductor consumption growth (Chart 12).

South Korea to Surpass Taiwan as Second-largest Manufacturing Hub for PCBs (Chart 13)

With more Taiwan-based PCB manufacturers relocating their manufacturing sites to China, China has solidified its position as the largest manufacturing hub for PCBs while South Korea is expected to move to second, unseating Taiwan, in 2013.

Japan's decline (exchange rate effect and actual production decline) helps South Korea to be in the second largest PCB making country. All in All, Taiwan's "total" production (Taiwan, China, Vietnam, Thailand, Germany, Japan and the U.S.) accounted for about 30% of the world in 2012. Japan had about 23% in various countries (Japan, Taiwan, China, Thailand, Malaysia, Indonesia, Philippines, Singapore, Vietnam and South Korea - Nippon Mektron has a FPC plant in South Korea). South Korea PCB accounted for 15% (operating in South Korea, China, Philippines, Vietnam and the U.S.). The share by these three countries totals 68% of the world's production.

Despite China's big share of 43-44% of the world, only 7.2% is held by China/HKG based makers in the world scene. North America holds about 11% share.

South Korea is seeing the highest growth rate thanks to the demand from Samsung Electronics, but Samsung went through inventory control in July-August period, which appears to have made South Korea's growth in the last half, less robust compared to the first half's nearly 12-15%. Flexible circuit boards are the driving force. ANYLAYER demand has been strong, but price erosion is not making so attractive from business prospect.

Growth in 2011, 2012 and 2013 is stagnant. Hopefully, 2014 will be a better year for the PCB industry as a whole.

Dr. Hayao. Nakahara’s further comments. Naka is the person who collected and published the data in Chart 13 that Digitimes used.

Approximately 43% of China PCB production is made by Taiwan transplants in 2012. This ratio is inching up more slowly than I was predicting because China based makers have recently been more aggressive about adding capacity while Taiwan makers are being more cautious regarding investment in China. Having said this, Compeq (Chongqing), GBM (Chongqing), Wus (Kunshan and HuangXi) and Unimicron (Jining) are investing in China with new plants. But, Kinsus, after building a substantial IC substrate plant in Suzhou, purchased a huge land in Hsinchu, Taiwan, for future expansion. Unitech stopped the project in Gaoyong, near Nanjing, and is enlarging its Taiwan plant. HannStar Board stopped its planned Chongqing expansion.

North American PCB Shipments Increased 3.6% y/y in October 2013; Book/Bill Declined to 0.94 (Charts 14-18)

North American PCB Sales and Order Growth Strengthening

IPC Releases PCB Industry Results for October 2013

IPC — Association Connecting Electronics Industries® announced the October findings from its monthly North American Printed Circuit Board (PCB) Statistical Program. Sales and order growth strengthened in October, but the book-to-bill ratio declined to 0.94.

Performance over Last Year Improves

Total North American PCB shipments increased 3.6% in October 2013 from October 2012. Year-to-date shipment growth is still negative compared to the same period in 2012, but is improving and reached -2.9% in October.

North American PCB bookings increased 7.0% year-over-year, an improvement that brought year-to-date growth into positive territory at 0.1%.

PCB shipments and bookings in October were both lower than in the prior month, reflecting normal seasonal patterns. Compared to September 2013, PCB shipments in October were down 6.6% and bookings were down 4.0%.

"Although both sales and order growth are trending up compared to last year, sales have outpaced orders in the past three months, causing the book-to-bill ratio to dip," said Sharon Starr, IPC’s director of market research. "Year-on-year sales growth has been improving for the past six consecutive months and finally turned positive in October," she added. "While a recovery in the second half of 2013 was anticipated, it has been slower than expected."

Worldwide Smartphone Shipments on Pace to Grow 39.3% to surpass 1.0 billion units in 2013, While Average Selling Prices Decline More than 12% (Charts 19-21)

According to International Data Corporation (IDC) worldwide smartphone shipments are expected to surpass 1.0 billion units in 2013, representing 39.3% growth over 2012. Despite a number of mature markets nearing smartphone saturation, the demand for low-cost computing in emerging markets continues to drive the smartphone market forward. By 2017, total smartphone shipments are expected to approach 1.7 billion units, resulting in a compound annual growth rate (CAGR) of 18.4% from 2013 to 2017.

A number of trends co-exist in the global smartphone market, but none have more of an effect on driving market growth than the steady decline in average selling prices (ASPs). Android has enabled a number of new manufacturers to enter the smartphone market supported by a variety of turnkey processing solutions. Many of these handset vendors have focused on low-cost devices as a way to build brand awareness. In 2013, IDC expects smartphone ASPs to be $337, down -12.8% from $387 in 2012. This trend will continue in the years to come and IDC expects smartphone ASPs to gradually drop to $265 by 2017.

"The game has changed quite drastically due to the decline in smartphone ASPs," said Ryan Reith, Program Director with IDC's Worldwide Quarterly Mobile Phone Tracker. "Just a few years back the industry was talking about the next billion people to connect, and it was assumed the majority of these people would do so by way of the feature phone. Given the trajectory of ASPs, smartphones are now a very realistic option to connect those billion users."

"The key driver behind smartphone volumes in the years ahead is the expected decrease in prices," said Ramon Llamas, Research Manager with IDC's Mobile Phone team. "Particularly within emerging markets, where price sensitivity and elasticity are so important, prices will come down for smartphones to move beyond the urban elite and into the hands of mass market users. Every vendor is closely eyeing how far down they can price their devices while still realizing a profit and offering a robust smartphone experience."

From a volume perspective, emerging markets including Asia/Pacific, Latin America, and Middle East and Africa (MEA) will all post market-beating growth rates from 2013 to 2017. Asia/Pacific will also experience some market share growth from 2013 to 2017. Developed markets, by contrast, will see market share erosion, but will nonetheless see volume increases during the same time period. All combined, the worldwide smartphone market is poised for certain growth.

Similarly, from a price perspective, ASPs in these same emerging markets will post single-digit CAGR declines from 2013 to 2017, led by Asia/Pacific. This will enable more users to afford smartphones for the first time, and in many cases, allow users to bypass purchasing feature phones altogether and go straight to smartphones.

Walt D. Custer

Walt Custer is an industry analyst focused on the global electronics industry. Prior to forming Custer Consulting Group he was Vice President of Marketing and Sales for Morton Electronic Materials, a global supplier of specialty chemicals and process equipment for the PCB industry.

Custer has been a member of the IPC trade organization since 1975 where he received both the President's and the Raymond E. Pritchard Hall of Fame Awards. He is currently a member of the IPC Executive Market & Technology Steering Committee. Custer is also a Director of the EIPC European PCB trade organization.

He authors regular “Market Outlook” columns for Global SMT & Packaging magazine, the Journal of the HKPCA and the TTI MarketEYE website.